Why Bitcoin Prices Slipped on Major Exchanges

• Bitcoin slippage surged during the August 5 sell-off, particularly on Japanese exchanges and less liquid pairs.
• Coinbase’s BTC-EUR pair saw extreme volatility due to lower liquidity compared to its BTC-USD pair.
• Binance.US faces liquidity challenges, processing just $20 million in daily trade volume after SEC’s lawsuit.

Last week’s crypto market sell-off led to substantial price slippage across major exchanges, particularly affecting Bitcoin ( BTC ) trading pairs. According to a report from Kaiko, the sell-off on August 5 caused a noticeable increase in slippage, especially on Japanese exchanges and less liquid trading pairs. This highlighted the ongoing liquidity challenges within the crypto market, which remain a concern despite some improvements over time.

Price slippage occurs when the price of a market order at execution differs from the expected price, serving as a critical indicator of market liquidity. Kaiko’s report pointed out that while the disparities in slippage have gradually reduced, they remain significant during volatile market events like last week’s sell-off. The August 5 event was particularly impactful, with slippage increasing across various exchanges, signaling liquidity stress.

For example, Kaiko observed that a $100,000 BTC order faced increased slippage on several platforms during the sell-off. The BTC-JPY pair on Zaif recorded the highest slippage, while KuCoin’s BTC-EUR pair saw slippage exceed 5%, a rise compared to normal market conditions. 

Additionally, stablecoin-quoted pairs on typically liquid platforms like BitMEX and Binance US also experienced notable slippage increases, reflecting the widespread impact of the market downturn.

The report also highlighted that the impact on liquidity is not uniform across exchanges. It varies among different trading pairs within the same platform. For instance, Coinbase’s BTC-EUR pair is much less liquid than its BTC-USD pair. 

This discrepancy can lead to extreme volatility during periods of heightened market activity. A notable example occurred in March when prices of Coinbase’s BTC-EUR pair diverged sharply from the broader market, and market depth plummeted, exacerbating the volatility.

Moreover, Binance.US has been facing liquidity challenges, with BTC prices on the platform diverging from those on more liquid exchanges. This issue has been partly linked to reduced liquidity following the SEC’s lawsuit against Binance in June 2023. As a result, Binance.US now processes only $20 million in daily trade volume, a dramatic decline from $400 million earlier in 2023.

Liquidity concentration has intensified, particularly in BTC-USD markets on weekdays, following the launch of spot Bitcoin exchange-traded funds (ETFs) in the U.S. This trend has amplified the risk of sharp price swings during weekends when market stress is more pronounced.

In addition, Mikybull Crypto, an economist, pointed out on social media that Bitcoin’s correlation with the global liquidity index remains strong. He noted that the global liquidity index recently broke out of a two-year resistance, suggesting that a strong and massive Bitcoin rally may be imminent.

Despite these challenges, crypto platforms have invested heavily in infrastructure to handle increased trade volumes. During the recent sell-off, trade counts for BTC-USD and BTC-USDT pairs hit record highs on Bybit and approached post-FTX collapse levels on Coinbase. This resilience suggests that while liquidity issues persist, the crypto market’s infrastructure is evolving to better manage these challenges.